Now that you are familiar with major areas that needs to focussed on, it’s time to make you familiar with some of the most asked MBA finance interview questions and answers:

Question 1: What is finance according to you?

Answer: In my opinion, Finance is the management of money and other financial assets. It is a term that comprises aspects like debt, banking, credit and more. It involves making informed decisions about how to allocate resources to achieve specific goals, whether it’s for personal, corporate, public, or international purposes.

Question 2: What do you understand about working capital?

Answer: In technical terms, working capital refers to current assets minus the current liabilities of a company. In simpler language, it represents whether the funds are available to meet day-to-day operations and other obligations. A healthy working capital is important for a company’s financial stability as it ensures that it can pay its bills on time, invest in inventory, and meet unexpected expenses.

Question 3: How can a Company Show Positive Net Income but go Bankrupt?

Answer: A company can show positive net income but go bankrupt just by using some financial tactics like enhancing account receivables and reducing account payables.

Question 4: What are the main components of working capital?

Answer: The main components include inventory, accounts receivable, accounts payable, and cash. An effective working capital management makes sure that a company meets its short-term obligations. 

Question 5: What causes a deferred tax liability to exist and why?

Answer: A deferred tax liability is created when a company’s accounting income is higher than its taxable income due to some temporary differences between accounting rules and tax regulations. This typically occurs when the company has expenses that are tax-deductible in the future but not recognised for accounting purposes in the current period.

Question 6: What do you mean by EBITDA, and why is it important?

Answer: The full form of EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a financial metric that measures a company’s operating performance, excluding the impact of interest expenses, taxes, depreciation, and amortization. It’s important because it eliminates the effects of financing and accounting decisions, providing a clearer picture of the company’s operational profitability.

Question 7: What is the difference between a merger and an acquisition?

Answer: Merger means when two companies combine to form a new entity, and an acquisition refers to when one company takes over another and becomes the new owner. Mergers are typically seen as a partnership, while acquisitions are more about one company dominating the other.

Question 8: How does inflation impact financial statements?

Answer: Inflation can impact financial statements by affecting the value of inventory, fixed assets, liabilities, and retained earnings. It is essential to adjust financial statements for inflation to get a true picture of a company’s financial health.

Question 9: When should a business consider issuing debt rather than equity?

Answer: Businesses should consider issuing debt rather than equity when interest rates are low, they have stable cash flow, they want to maintain control, they seek tax benefits, or they have specific investment needs. However, excessive debt can increase financial risk.

Question 10: What do you understand about the Secondary Market?

Answer: The secondary market, also known as the aftermarket, is a marketplace where existing securities, such as stocks and bonds, are traded among investors. Unlike the primary market, where the issuer initially issues securities, the secondary market involves transactions between investors.

Question 11: What does goodwill mean, and why is it important?

Answer: Goodwill, an intangible asset, typically means the value of a company’s reputation, customer relationships, brand name, and other intangible assets that contribute to its earning potential. It is mostly recorded on the balance sheet when one company acquires another for a price that exceeds the fair market value of its tangible assets.

Question 12: What are some risks involved in international finance?

Answer: International finance includes currency risk, political risk, credit risk, and market risk. Currency risk arises from fluctuations in exchange rates, while political risk involves changes in government policies that could affect investments. 

Question 13: What do you like about finance?

Answer: I find finance fascinating because it allows me to combine my love for numbers and problem-solving with a deep understanding of business and economics. I’m particularly interested in how financial decisions can impact individuals, companies, and entire economies.

Question 14: What is the net worth of a company?

Answer: Net worth is a measure of a company’s financial health. Technically it is the difference between its assets and liabilities. In simpler terms, it’s the value that would remain if a company were to sell all its assets and pay off all its debts.

A positive net worth indicates a financially healthy company, while a negative net worth suggests that the company owes more than it owns.

Question 15: Explain Future and Forward Contract.

Answer: Forward Contracts are custom agreements between two parties, traded over-the-counter. While, Futures Contracts are standardised contracts traded on exchanges.

Both involve a future agreement to buy or sell an asset, but futures contracts offer more liquidity and standardization due to their exchange-traded nature.